U.S. paces global manufacturing in a partly sunny outlook
Global technology research leader IHS says, while global manufacturing growth shows no signs or retreating, the pace of growth may slow a bit as the pressures of low oil prices deliver a one-two punch.
While global manufacturing growth shows no signs or retreating, the pace of growth may slow a bit as the pressures of low oil prices deliver a one-two punch.
That’s the view of global technology research leader IHS, which delivered its annual manufacturing market update to a room filled with industrial leaders and global trade press at Hannover Messe 2015.
Even while oil prices will affect both new wells and some automation product purchases, the overall outlook for the U.S. manufacturing economy remains bright, according to IHS analysts.
“The overall economic situation is improving,” said Alex Chausovsky, senior principal analyst for industrial automation with IHS. “We’re seeing some of that pent-up demand resulting in new orders.”
He sees overall growth for the U.S. at between 4% and 5% in 2015, but what he called “headwinds” may slow that growth a bit. “Oil and gas could have a significant impact,” Chausovsky said. “We see a decline in investments in automation equipment of about 8%, and oil and gas is approximately 7% of overall industrial automation equipment sales.”
But Chausovsky added, “The growth in the discrete sector will offset losses in the process sector.”
IHS analysts said overall oil sector growth will slow because certain types of drilling and extraction operations—shale oil for example—cost more than the price of oil, which makes extraction unprofitable. In many countries, such as Venezuela, the overall cost of extraction is prohibitively high, and barely was profitable when oil was $50 a barrel.
Spencer Welch, director of downstream consulting for IHS, said that the market will spend the next 18 month rebalancing production and supply before prices begin to rise significantly. “There are a number of wells just sitting out there waiting for the taps to bet turned back on,” he said. He noted that prices remain low despite a continuing rise in global demand for oil.
“North America already is starting to cut back production. Expensive projects will be at risk,” Welch said, but added. “We’re talking about a delay in projects, not cancellation.”
Bullish on U.S. market, part 2: In his annual meeting with the international press, Dr. Andreas Gruchow, member of managing board of Deutsche Messe responsible for international shows (and the host of the global press at Hannover Messe) said the importance of the United States as a global trading partner for Europe in general and Germany in particular is a vital one. It is one of the main reasons Hannover Messe officials are so excited that the U.S. will be the Partner Country at Hannover Messe 2016.
Gruchow noted that not only is the manufacturing the single leading economic driver in the U.S., it is also on its own the world’s ninth largest economy. He said besides the 12 million U.S. manufacturing jobs, the manufacturing sector also supports 1 million German jobs.
On the subject of Industry 4.0 and the Industrial Internet of Things (IIoT), Gruchow said the Integrated Industry topic at the center of Hannover Messe 2015 reflects the needs and expectation of exhibitors. “Everything is moving from a cost center to a profit center,” Gruchow said. Projections in Germany are that IIoT deployment in Germany next year will increase efficiency by 18% and reduce costs by 14%. “We are making a big leap forward,” said Gruchow.
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Before the calendar turned, 2016 already had the makings of a pivotal year for manufacturing, and for the world.
There were the big events for the year, including the United States as Partner Country at Hannover Messe in April and the 2016 International Manufacturing Technology Show in Chicago in September. There's also the matter of the U.S. presidential elections in November, which promise to shape policy in manufacturing for years to come.
But the year started with global economic turmoil, as a slowdown in Chinese manufacturing triggered a worldwide stock hiccup that sent values plummeting. The continued plunge in world oil prices has resulted in a slowdown in exploration and, by extension, the manufacture of exploration equipment.
Read more: 2015 Salary Survey